Euro climbs to more than three-month high on Draghi's comments

NEW YORK (Reuters) - The euro rose to a more than a three-month high against the dollar on Monday after European Central Bank chief Mario Draghi said he sees a vigorous pickup in euro zone inflation, backing moves toward unwinding an ECB asset purchase program meant to stimulate the economy.

The single currency has been on an uptrend the last few weeks, bolstered by generally solid European economic data. Over the last 10 days, the euro has risen 2.5 percent versus the greenback.

The dollar drifted higher against the yen as investors looked for fresh cues to extend a multi-month rally in the greenback before a widely expected interest rate hike by the Federal Reserve this week.

The dollar briefly slipped against the yen after some media said U.S. Deputy Attorney General Rod Rosenstein was headed to the White House amid reports he had offered to resign in anticipation of being fired by President Donald Trump.

Rosenstein, who oversees the special counsel investigation into Russia’s role in the 2016 U.S. presidential election, will meet with Trump on Thursday to discuss whether Rosenstein will stay in his job.

“There was a pretty material response to Draghi and that was compounded by the political developments in Washington with respect to the deputy attorney general,” said Eric Theoret, currency strategist at Scotiabank in Toronto.

“But after all that action, we’re back to where we were before Draghi’s comments and the Rosenstein news and we’re sort of waiting here for the Fed decision this week,” he added.

Draghi on Monday described an acceleration in underlying euro zone inflation as “relatively vigorous” and expressed confidence a pickup in wage growth would continue, lifting the euro. But he reaffirmed the ECB’s pledge to keep rates at their rock-bottom level through the summer of next year.

In afternoon trading, the euro rose 0.1 percent against the dollar to $1.1755 EUR=. It rose as high as $1.1815, a 3-1/2-month peak.

The market is forecasting a Fed rate hike this week, another in December and two to three more next year, which is roughly in line with Fed policymakers’ own projections. Analysts said only unexpectedly strong data would change those market bets.

Natwest Market analysts believe a large majority at the Fed will see another rate hike in December as appropriate. In 2019, most will favor three hikes, followed by just one in 2020, they added.

Earlier, the dollar snapped a two-week losing streak as the weekend brought global trade tensions back into the spotlight after Beijing released a white paper on its trade dispute with the United States, saying it would seek a reasonable outcome, while also describing U.S. tactics as “bullying.”